Chapter- 13, Substantive Procedures- Key Financial Statements Figures

Assurance Professional Stage: Knowledge Level Substantive Procedures- Key Financial Statements Figures (Chater-!"# $%$-C&''$) ASS)S A* +hat are are the the ,ey areas areas for for testin testing g

1. Tangi Tangible ble non-cur non-curren rentt asse assets; ts; 2. Intangi Intangible ble nonnon-cur curren rentt asset assets; s; and and 3. Inve Invest stme ment nts. s. !* +hat are are the ,ey areas areas when when testing testing tangible tangible non-curr non-current ent assets assets • • • •

Confirmation of ownership to ensure rights and obligations; Inspection of non-current assets to ensure existence and valuation; aluation! aluation! preferable b" third parties for accurate valuation; and #de$uac" of depreciation rates for actual valuation.

.* +hat are are the ,ey areas areas when when testing testing intangible intangible non-current non-current assets assets • •

Confirmation that assets exist; and Confirmation of appropriate valuation.

"* +hat are are the the ,ey areas areas when when testin testing g investme investments nts • •

Confirmation of existence; and Confirmation of ownership.

/* +hat are the reasons reasons of tangible tangible non-curre non-current nt assets balances to be misstated misstated in the the financial financial statements

The ma%or ris&s of the tangible non-current assets balances in the financial statements being misstated are due to' • • • •

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The compan" not actuall" owing the assets; The assets not actuall" existing or having been sold; (mission of assets owed b" the compan"; The assets assets being being overva overvalue lued! d! either either b" inflat inflating ing cost cost or valuat valuation ion or b" underch undercharg arging ing depreciation; The assets being undervalued b" not including an appropriate revaluation in a polic" of  revaluation or b" overcharging depreciation; and The assets being incorrectl" presented in the )*s.

0* +hat are are the resources resources of of information information about non-current non-current assets assets • •

The non-current assets register; +urchase invoices for assets purchased within the "ear;

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Substantive Procedures: Procedures: Key Financial Financial Statements Figures Figures

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*ales invoices for the assets sold within the "ear; ,egistration documents or other documents; aluation carried out b" emplo"ees or third parties; ease or hire purchase documentation in respect of assets; +h"sical inspection of the assets; and epreciation records and calculations.

1* +hat are the ma2or ris,s of misstatement of the intangible non-current asset balances in the financial statements

The ma%or ris&s of misstatement of the intangible non-current assets balances in the financial statements are due to' • •

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/xpenses being capitali0ed as non-current assets inappropriatel". Intangible assets being carried at the wrong cost or valuation due to inflating the cost or  valuation; Intangible assets being carried at the wrong cost or valuation due to charging in appropriate amorti0ation! wrongl" amorti0ing or not amorti0ing; Intangible assets being carried at the wrong cost or valuation due to impairment reviews not  being carried out appropriatel".

The ob%ective of tests in respect of intangible non-current assets is therefore to prove these assertions about the assets are correct.

3* +hat are the sources of information about intangible $CA •

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#ccounting standards and auditors &nowledge of accounting standards for what constitutes an intangible assets; +urchase invoice or documentation; Calculations and schedules ; *pecialists valuations; and #uditors understanding of the entit". 4$5$)%'6

7* +hat are the ,ey areas when testing inventory

e" areas when testing inventor" are' #ttending an inventor" count; • aluation at lower of cost and net reali0able value; and • In some cases confirmation of ownership. • 8* +hat are the ma2or ris,s of misstatement of the inventory balance in the FSs

The ma%or ris&s of misstatement of the inventor" balance in the financial statements are due to' Inventor" that does not exist being included in the )*s; •  o all inventories that exists being included in the )*s; • Inventor" being included in the )*s at full value when it is absolute or damaged; •  Assurance Professional Stage Knowledge Level

Substantive Procedures: Key Financial Statements Figures

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Inventor" being included in the )*s at the wrong value whether due to miscalculation of cost or valuation method; and Inventor" that actuall" belongs to third parties being included in the financial statement.

9* +hat are the sources of information about inventory • • •

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The companies control over inventor" counting; The auditors attendance at the annual inventor" count; Confirmation with third parties holding inventor" or having inventor" stored for them b" the compan"; +urchase invoices for inventor"; or& in progress records for inventor"; +ast "ear end price lists for inventor"; and +ast "ear end sales orders.

Inventor" ma" lend itself to anal"tical review as there is a relationship between inventor"! revenue and purchases. !* +hen net reali;able value is li,ely to be less than cost

 et reali0able value is li&el" to be less than cost when there has been' #n increase in costs or a fall in selling price' • +h"sical deterioration; • (bsolescence of products; • # mar&eting decision to manufacture and sell products at a loss; • /rrors in production or purchasing. • )or wor&ing progress the ultimate selling price should be compared with the carr"ing value at the "ear-end plus costs be incurred after the "ear-end to bring wor&-in-progress to a finished stage. 'C45A7LS C* +hat are the ,ey areas when testing receivables

e" areas when testing receivables are' Confirming debt owed b" customers; and • Confirming debt is still li&el" to be collected. • !!* +hat are the ma2or ris,s of misstatement of the receivables balance in the financial statements

The ma%or ris&s of misstatement of the receivables balance in the financial statements are due to' ebt being uncollectible; and • ebts being contested b" customers; • The ob%ective of audit tests in respect of receivables is therefore to prove that these assertions about the assets are correct. !.* +hat are the sources of information about receivables

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,eceivables ledger information; Confirmation from customers; and Cash pa"ments received after the "ear end.

!"* +hat are the methods of confirmation from customer and when to e